U.S. Bankruptcy Judge James M. Peck approved the company’s
disclosure statement, an outline of the restructuring plan,
finding that it contained adequate information for creditors to
make an informed vote, according to court documents filed Oct.
29 in Manhattan. The company is scheduled to seek court approval
of its reorganization plan at a Dec. 5 hearing.

“The plan effectuates a restructuring transaction under
which the sponsor will make contributions to the estates
sufficient to ensure a meaningful recovery to holders of general
unsecured claims,” the New York-based company said in court
filings. Unsecured creditors are projected to receive a recovery
of as much as 25 percent.

The company sought bankruptcy protection in January
intending to break away from French parent Atari SA, which
hasn’t made a profit since 1999 and sought related relief from
creditors under French law, the company has said.

A pioneer in the home video-game console market and maker
of classic titles such as “Pong” and “Asteroids,” Atari
attempted to sell virtually all its assets earlier this year,
according to court documents. Atari, which owned or managed more
than 200 games and franchises, failed to get qualified offers
for key assets including its namesake brand, for which it was
seeking a minimum of $15 million.

Atari, founded in 1972, changed course in September and now
plans to reorganize and continue operating with the brands it
has left, according to court documents. Its parent is sponsoring
the restructuring plan.

Atari and the parent determined the “business and
remaining assets have substantial value that would not otherwise
be realized in a liquidation.” The video-game maker would
reorganize around titles such as “RollerCoaster Tycoon,”
“Test Drive” and “Centipede.”

The company moved forward with auctions of seven less-valuable franchises that generated a total of about $5.1
million, according to court papers.

Under the reorganization plan, unsecured creditors, which
Atari estimates are owed $5 million to $7 million, would get
cash payments for a recovery of as much as 25 percent, according
to court documents. The recovery estimate assumes the unsecured
creditors aren’t owed more than $7 million and would be reduced
if allowed claims exceed that amount.

The official committee representing unsecured creditors
supports the plan, according to court papers. The unsecured
creditors would get a payment of 8 percent of their claims or
$560,000, whichever is less, when the plan takes effect. They
would get identical treatment one year later, and then get a
payment for the lesser of 9 percent of their claims or $630,000
two years later.

Atari SA is waiving its right to any distribution on its
$309.5 million in intercompany claims, according to court
documents. Alden Global Capital, which acquired a secured credit
facility to Atari SA in February, would be paid in full on the
$5 million it loaned to help fund the bankruptcy case.

The case is In re Atari Inc., 13-bk-10176, U.S. Bankruptcy
Court, Southern District of New York (Manhattan).

Other Updates

AMR-US Airways Said to Be in Merger Lawsuit Talks With U.S.

American Airlines and US Airways Group Inc. are in
exploratory talks with the U.S. about settling the government’s
lawsuit seeking to block their proposed merger, two people
familiar with the matter said.

The discussions are taking place between lawyers for the
airlines and top officials at the Justice Department’s antitrust
division, said the people, who asked not to be named because the
conversations are confidential. The airlines are offering to
divest gates and landing and takeoff rights at Washington’s
Reagan National Airport as part of a settlement package, one of
the people said.

The talks are still preliminary may not lead to settling
the suit, the people said.

“Any discussions about settlement to resolve this
litigation, whether internal, with DOJ directly or through the
mediator would be private and we are not going to comment on
them in any way,” Jill Zuckman, a spokeswoman for US Airways,
said in an e-mailed statement.

The airlines and the Justice Department said on Oct. 28
that they agreed to submit the lawsuit to mediation as suggested
by U.S. District Judge Colleen Kollar-Kotelly, who’s overseeing
the case. A trial is set to begin Nov. 25.

Rich Parker, an attorney for US Airways, declined to
comment on the mediation or settlement prospects when he spoke
with reporters Oct. 30 outside federal court in Washington
following a status hearing in the case.

“We have always said that our side is open to discussions
but I’m not going to talk about any aspect of settlement,”
Parker said. He said Kollar-Kotelly “asked for a mediator. When
the judge asks us to do that, we do that.”

The Justice Department sued American parent AMR Corp. and
US Airways in August, claiming the planned merger, which would
create the world’s largest airline, would reduce competition and
lead to higher prices.

American, which has been in bankruptcy since November 2011,
was set to exit court protection by merging with Tempe, Arizona-based US Airways when the Justice Department and a group of
states sued to block the deal Aug. 13.

AMR, based in Fort Worth, Texas, would have to start over
in its reorganization if the U.S. wins a court order stopping
the tie-up, the committee representing the carrier’s unsecured
creditors said in a court filing Oct. 28.

American’s Chief Executive Officer Tom Horton said reaching
a “reasonable settlement” of the case would be better for both
sides than going to trial, speaking at a conference in New York
Oct. 29.

The bankruptcy case is In re AMR Corp., 11-bk-15463, U.S.
Bankruptcy Court, Southern District of New York (Manhattan). The
antitrust case is U.S. v. US Airways Group Inc., 13-cv-01236,
U.S. District Court, District of Columbia (Washington).

Suntech Power to Fight Involuntary Bankruptcy by Bondholders

Suntech Power Holdings Co., the Chinese solar company whose
main unit was pulled into bankruptcy, said it will fight an
attempt by bondholders seeking to force it into court protection
in the U.S.

The company had involuntary Chapter 7 bankruptcy
proceedings initiated against it on Oct. 14 in U.S. Bankruptcy
Court in White Plains, New York, by holders of more than $1.5
million of defaulted securities under a 2008 $575 million
indenture.

Suntech “intends to challenge the petition for involuntary
bankruptcy,” and has until Nov. 6 to respond, the Wuxi, China-based company said in a statement yesterday.

Suntech’s main unit was pulled into bankruptcy proceedings
in China after the panel maker missed a bond payment in March.
It was the world’s biggest solar manufacturer by 2011 shipments.

Suntech defaulted on $541 million in bonds, according to
the Chapter 7 filing.

Bondholders claim that that Suntech has failed to satisfy
judgments of more than $560,000 they won in September.

Wall Street investors funneled $1.28 billion into Suntech,
including the bonds and $742.6 million of stock sales in 2005
and 2009, according to the filing.

The company had $2.26 billion in debt at the end of the
first quarter, the last time it reported earnings.

The involuntary petition case is In re Suntech Power
Holdings Co., 13-bk-13350, U.S. Bankruptcy Court, Southern
District of New York (White Plains).

NE Opco Wins Court Extension of Bankruptcy Plan Filing Period

NE Opco Inc., which was the largest closely held envelope
maker in North America before selling virtually all its assets,
won court approval of an extension to Jan. 6 of its exclusivity
period, which gives it the sole right to propose a bankruptcy
restructuring or liquidation plan.

The company said in court papers that it was seeking the
extension out of an “abundance of caution” because it has
spent most of the early part of the bankruptcy process
negotiating and completing sales and hasn’t yet been able to
turn its attention to winding down the estates.

“Because the sales closed very recently, the debtors
require additional time to analyze the path toward winding down
the debtors’ estates,” NE Opco said in court filings

The company’s exclusivity was set to run out on Oct. 8,
court papers show. Under Delaware bankruptcy law, the company
automatically receives an extension of its exclusivity after a
request is made, until a judge rules.

The company won court approval in September to sell
substantially all its assets to three separate buyers for a
total of about $70 million.

Cenveo, based in Stamford, Connecticut, paid about $33
million for the envelope business. Hilco Receivables paid about
$22 million for NE Opco’s accounts receivables and Southern
Paper LLC acquired inventory for about $15 million.

The envelope maker sought Chapter 11 protection June 10 for
the second time as mailings dwindle and the Internet keeps
growing as the favored method for communications. The Frisco,
Texas-based company listed as much as $500 million in both
assets and liabilities.

Private-equity firm Gores Group LLC bought virtually all of
National Envelope’s assets in its first bankruptcy at an August
2010 auction for about $208 million.

NE Opco had eight plants and two distribution centers
capable of producing 37 billion envelopes a year, giving it a 15
percent share of the U.S market.

The case is In re NE Opco Inc. 13-bk-11483, U.S. Bankruptcy
Court, District of Delaware (Wilmington).

Batista 11th-Hour Sale Needs Creditor Approval, Lawyer Says

OGX Petroleo & Gas Participacoes SA’s agreement to sell its
only producing asset for $154 million hours before a bankruptcy
filing will need to be approved by creditors, said a lawyer
advising OGX.

The deal requires approval under a judicial recovery plan
that OGX filed Oct. 30, Eduardo Munhoz, a partner at Mattos
Filho Veiga Filho Marrey Jr. & Quiroga Advogados that is an
adviser to OGX, said in a text message from Sao Paulo.

The first Brazilian oil producer to seek protection from
creditors reached an accord to sell its stake in OGX Maranhao
Petroleo e Gas SA Oct. 30, according to a copy of the bankruptcy
protection petition. Brazilian private equity fund Cambuhy
Investimentos Ltda and Germany’s EON SE will buy the OGX stake
in two stages in a transaction worth 594 million reais ($264
million), the company said yesterday in a regulatory filing.

“Creditors can just not approve it and it won’t happen,”
Munhoz said.

OGX, controlled by former billionaire Eike Batista, has
about 11.2 billion reais in total debt, according to its filing.

The $154 million OGX would get from the sale is less than
the $173 million the company said in a document Oct. 7 it
expected to get by selling the unit to Eneva SA, the Brazilian
utility controlled by EON and Batista.

For more, click here.

New Filings

Topaz Capital & Investment Files Second Bankruptcy

Topaz Capital & Investment Inc., which owns property
planned for residential development, sought bankruptcy
protection from creditors for the second time, less than a year
and a half after its first case was dismissed.

The company listed debt of about $17.3 million and assets
of $5 million in Chapter 11 documents filed Oct. 28 in U.S.
Bankruptcy Court in San Diego, where it is based.

Topaz’s only asset is 28.55 acres in Victorville,
California, which it values at $5 million, according to court
papers.

The company sought Chapter 11 bankruptcy in March 2010 and
had the case dismissed at its request more than two years later,
according to court document. The company said it resolved a
disputed creditor claim that had prompted Topaz to make the
bankruptcy filing to prevent a foreclosure sale of the property.

The U.S. Trustee, a branch of the justice department that
monitors bankruptcy cases, asked for the first bankruptcy to be
dismissed about seven month after the filing, saying little
progress had been made in the case and the company didn’t show a
reasonable likelihood of rehabilitation.

Topaz said in court documents filed in the first case that
it was pursuing a Housing and Urban Development loan to commence
construction of residential project, with 236 units planned for
the first phase and a total of 428 “market rate multifamily
apartments” which would possibly include affordable housing.

The company owes most of its debt to Integrated Financial
Associates Inc., which has a claim of about $16 million secured
by the property.

The case is In re Topaz Capital & Investment Inc., 13-bk-10467, U.S. Bankruptcy Court, Southern District of California
(San Diego). The first case was In re Topaz Capital & Investment
Inc., 10-bk-04983, U.S. Bankruptcy Court, Southern District of
California (San Diego).

Statistics

Canadian Companies Lead Foreign Chapter 15 Bankruptcy Filings

Thirty-three foreign companies have sought to protect their
assets in the U.S. with Chapter 15 bankruptcy filings so far
this year. Canadian companies have accounted for 39 percent of
the total.

Chapter 15 of the U.S. Bankruptcy Code is used by foreign
companies to shield U.S. assets from creditors’ claims and
protect them from lawsuits, if it can persuade a U.S. bankruptcy
judge to recognize its insolvency proceedings abroad as the
foreign main proceeding.

If OGX Petroleo & Gas Participacoes SA, which filed for
bankruptcy Oct. 30 in Brazil in the largest corporate debt
debacle on record in Latin America, seeks Chapter 15 bankruptcy
protection, it will be the second Brazilian company to do so
this year. Banco Pontual filed for Chapter 15 on Oct. 22.

Twelve foreign companies filed their Chapter 15 bankruptcy
petitions in New York’s Southern District Bankruptcy Court this
year, making it the busiest venue for such cases. Seven
companies have filed for Chapter 15 protection in Delaware’s
Bankruptcy Court during that period.

Defaults

Next Corporate Default Cycle to Have More Losses, Moody’s Says

The next corporate default cycle could result in higher
investor losses than the one just experienced in the U.S. and is
expected to have a lower default rate over a longer period,
Moody’s Investors Services said in an Oct. 30 statement.

“Assuming the next default cycle is driven by a more
traditional economic downturn that does not prompt U.S. Federal
Reserve intervention, it is likely to resemble those of 1990-92
and 1999-2004,” Moody’s Senior Vice President David Keisman
says in a report titled “Next Default Cycle May Feature Lower
Default Rate, but Higher Investor Losses” according to the
statement.

“If so, the default rate will be lower and the duration
longer, but average firm-wide recoveries could also be lower”
Keisman says in the report.

The previous default cycle in 2009 and 2010 was softened by
a multitude of distressed debt exchanges and so-called
prepackaged bankruptcies, where restructuring terms were already
worked out with creditors who pledged their support for the
reorganizations before the companies sought bankruptcy
protection.

“The next default cycle could include a higher proportion
of court-supervised Chapter 11 filings, which tend to have
weaker recoveries,” Keisman says.

The report authors question whether the recent distressed
debt exchanges provided enough capital or merely bought the
companies some time before a default or bankruptcy.

About 100 companies executed distressed exchanges during
2009 and 2010 and so far 14 have defaulted again, with most
resulting in bankruptcies.

There is no clear sign yet of when the next default cycle
may occur, Moody’s says. While there has been deterioration in
speculative-grade credit quality it hasn’t reached levels that
would see the default rate surge in the next year.

The New York-based credit grader expects a 2.7 percent
default rate among U.S. speculative-grade issuers at the end of
this year. The riskiest corporate borrowers have been buoyed by
the Federal Reserve’s unprecedented monetary stimulus, which has
pushed bond yields to the lowest ever.

Even as the default rate holds below a two-decade average
of 4.5 percent, credit quality has started to decline, leading
to an increase of downgrades to the B2 and B3 categories, five
and six levels below investment grade. Companies have increased
their ratios of debt to earnings, lowered interest coverage and
issued more covenant-light securities that have fewer investor
protections.

Yields on bonds issued by the riskiest U.S. companies fell
to a record low of 5.98 percent in May, according to the Bank of
America Merrill Lynch U.S. High Yield index. Borrowing costs
have since risen to 6.44 percent, below the average of 9.05
percent during the past 10 years.

Watchlist

Caesars Poised for Distressed Debt Exchange, CreditSights Says

Caesars Entertainment Corp., the casino operator with more
than $24 billion in debt, will probably need to coerce
bondholders to exchange their holdings for new securities to cut
its borrowing costs and avoid bankruptcy, according to
researcher CreditSights Inc.

The owner of Caesars Palace and Harrah’s Las Vegas, which
hasn’t had a profitable quarter since at least 2010, may seek to
swap a portion of its operating unit’s second-lien debt for
payment-in-kind, or PIK, securities, analysts led by Chris Snow
wrote in an Oct. 30 report. PIK notes allow borrowers the
ability to pay interest with additional debt.

“Our base case is that an exchange occurs, which will free
up cash flow” and “stabilize the bleed,” the analysts wrote.
“An inability to execute an exchange will potentially increase
the odds of a filing.”

The largest owner of casinos in the U.S. said Oct. 29 that
its net loss widened to $761.4 million after the company wrote
down properties in Atlantic City and gambling revenue shrank.
Caesars is burning through cash almost six years after Apollo
Global Management LLC and TPG Capital took the company private
in 2008. It sold shares to the public in February 2012.

Caesars Entertainment Operating Co.’s $3.3 billion of 10
percent, second-lien bonds due 2018 traded at 50.5 cents on the
dollar to yield 29.2 percent at 12:53 p.m. in New York,
according to Trace, the bond-price reporting system of the
Financial Industry Regulatory Authority. The notes have plunged
from 70.5 cents in January.

Energy Future Gets $4.4 Billion Debtor-in-Possession Loans

Energy Future Holdings Corp. obtained commitments for $4.4
billion of loans in the event the Texas power generator taken
private in the biggest leveraged buyout ever files for
bankruptcy protection.

The financing includes as much as $3.6 billion of senior
secured debtor-in-possession loans as well as a $750 million
uncommitted portion, the company said in a regulatory filing.
The Dallas-based company would get the proposed two-year
facilities from “certain third-party financial institutions”
if it were to file for bankruptcy protection.

Energy Future also said confidential negotiations with
creditor groups to date had failed. A restructuring plan
submitted by owners led by KKR & Co. and TPG Capital would have
seen them retain 4 percent of the company’s equity, giving the
remainder to senior creditors at Energy Future’s Texas
Competitive unit.

Debtor-in-possession financing is funding arranged by a
company going through the Chapter 11 bankruptcy process, which
typically has priority over existing debt, equity and other
claims. Such a large DIP may help reassure vendors, customers
and regulators the company can meet its obligations.

Texas’s largest electricity provider is expected to make a
$270 million interest payment due today after restructuring
talks with creditors broke down, according to people familiar
with the situation. The payment gives the company and its
creditors several months to try to negotiate a fresh bankruptcy
deal, the people said.

Energy Future, which was bought in 2007 for $48 billion by
private-equity firms led by KKR & Co. betting on a boom in
natural gas prices, came close to filing for bankruptcy before
talks with creditors on a restructuring fell apart yesterday.

The company reported its first quarterly profit in more
than two years partly because of a gain on commodities hedging,
it said in today’s filing. Third-quarter earnings of $5 million
compared with a loss of $407 million a year earlier.